LIVING IN FANTASY LAND

DAILY FANTASY SPORTS SITES ARE BURGEONING, BUT TURNING A PROFIT IS STILL A MAJOR ISSUE, AS IS THE LAW

Daily fantasy sports sites are rapidly become very popular with fans, but turning a profit is still a major issue, as is the law.

There is nothing make-believe about the growth of fantasy sports over the past decade or so. What was once a mere hobby for dedicated sports fans has developed into a multi-billion-dollar industry thanks in no small part to the burgeoning daily fantasy sports (DFS) sector that now allows people to participate all day, every day, almost like being the general manager of a real pro team.

For the uninitiated, fantasy sports takes many different formats, but boils down to drafting a fictitious team of professional players in a particular sport and competing against others for a pool of prizes — in some cases, very large prizes — often for a fee.

Wait... doesn’t that sound like gambling? Not according to the law. The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), a piece of U.S. legislation that put an end to the American online gaming and poker industry, specifically exempts fantasy sports, which dodged the bullet because most experts consider it a game of skill. Of course, it didn’t hurt that the National Football League lobbied for the exemption, arguing that participation in fantasy sports helped generate more interest in its game.

In the U.S., games that are considered mostly skilled-based are not defined as gambling, which is why many were surprised that poker — which many believe is 60% skill, 40% luck — was lumped together with other online casino games.

In Canada, the definition of unlawful gaming is much more stringent. Subsection 206(1)(f) of the Criminal Code prohibits competitors paying for games of mixed chance and skill. The pertinent legislation reads: “Every one is guilty of an indictable offence and liable to imprisonment for a term not exceeding two years who... disposes of any goods, wares or merchandise by any game of chance or any game of mixed chance and skill in which the contestant or competitor pays money or other valuable consideration...”

Therefore, games of pure skill are not subject to that law, and fantasy sports — according to the legal minds that study the issue — is considered completely skills-based. “People argue — and I think that they may have a valid point here — that it’s a game of skill because you’re acting in the same capacity as that of a general manager or a team manager of a sports team,” says Michael Lipton, a Toronto-based lawyer who has been focused on the gaming industry for a quarter-century.

The Fantasy Sports Trade Association (FSTA) makes a compelling argument differentiating fantasy sports from gambling. Its key points are: that the proliferation of data, statistics and game theory must be taken into account to be successful (hence, it’s definitely a game of skill); Major League Baseball and the NFL — both highly sensitive to gambling — support fantasy sports sites and run their own contests; and those that participate in fantasy sports tend to enter the hobby for reasons that have nothing to do with money.

Not surprisingly, the gaming industry is none too pleased that its interests have landed on the wrong side of the law while fantasy sports openly flourishes. Canadian Gaming Association vice-president Paul Burns takes issue with the idea that fantasy sports is considered a pure skills-based game. “Is it all skill involved in picking players? Is there any luck involved? It’s a murky area,” he told TSN.ca in July.

Burns poses a fair question, one that has yet to be answered by law. Lipton says two U.S. Federal Court decisions “seemed to suggest very strongly that fantasy sports was not really gambling,” but no court has tested the theory that it’s a game based solely on skill.

However, the lack of case law and legislative clarity has not stopped the industry from surging forward, as huge investments continue to be made and Canadian fantasy sports gaming providers have become acquisition targets as more companies seek to gain a foothold in this space.

According to the FSTA, 56.8 million people participated in fantasy sports in North